Cablevision announces Q2 results, Madison Square Garden spin-off

Mike Robuck

Cablevision said today that its board of directors has signed off on a plan to spin-off its Madison Square Garden (MSG) division, which includes the New York Knicks, Rangers and Radio City Music Hall, into a separate company by the end of the year.

The proposed spin-off still needs to clear various approvals, but Cablevision President and CEO James Dolan said the end result would “create two distinct companies, logically organized, with defined strategies and enhanced clarity for investors.”

Under the current structure, investors who wish to invest in Madison Square Garden’s entertainment and sports endeavors have to also invest in Cablevision’s cable business, and vice versa.

Once the spin-off is complete, Cablevision shareholders would own shares in both Cablevision and the new MSG. Cablevision expects the spin-off will be in the form of a pro rata distribution to all shareholders of Cablevision, with holders of Class A common stock receiving Class A shares in Madison Square Garden and holders of Class B common stock receiving Class B shares in Madison Square Garden.

Once the ink dries on the spin-off, the Dolan family would control both Cablevision and the new MSG through its ownership of Class B shares. The Dolan family has previously tried to take Cablevision private but was unable to do so.

Cablevision made a point today of reiterating that it is not considering the sale of MSG, any of MSG's businesses or any other Cablevision business at this time.

Following the spin-off, James Dolan would become executive chairman of the new, public Madison Square Garden and would continue in his present role as president and CEO of Cablevision. Hank Ratner would be president and CEO of Madison Square Garden, and would remain Cablevision’s vice chairman while Charles Dolan would continue in his role as Cablevision’s chairman.

Despite solid results from its cable operations, Cablevision posted a net income of $87 million, or 29 cents per share, in the second quarter, compared with $94.7 million, or 32 cents per share, in the same quarter a year ago. Cablevision’s second-quarter consolidated net revenues increased 9.8 percent to $1.88 billion due to growth in the telecommunications services and Rainbow divisions.

“For the second quarter, Cablevision enjoyed solid increases in both revenue and AOCF,” James Dolan said. “The company also generated more than $200 million in free cash flow, bringing the total amount for the first six months of 2009 to $403 million. Meanwhile, our cable operations continued to add revenue-generating units, including nearly 40,000 new voice customers, which helped maintain Cablevision’s industry-leading penetration rates.”

Cablevision’s cable operations posted a net revenue growth of 4.6 percent to $1.29 billion, with AOCF growth of 6.1 percent to $528.3 million for the quarter. Cablevision said operating income increased 13.7 percent to $323.5 million. The increases in net revenues, AOCF and operating income were primarily due to growth in the company’s triple-play services, as well as higher rates in the second quarter.

Cablevision competes against Verizon throughout its New York metropolitan footprint. It recently extended its Wi-Fi service[1] into Rockland and Orange counties in New York.

“The company seems to be holding up pretty well against the competition so far,” said Patti Reali, directing analyst for Trender Research. “So long as they continue to add value, with things like Wi-Fi, and eventually RS-DVR and interactive applications, and keep customer service levels high. But they are up against a real juggernaut in Verizon FiOS, which is posting gains in the hundreds of thousands across the markets where it operates, not single digit thousands.

“Cablevision does have an advantage so far with local programming and sports channels, but Verizon is committed to building up a local channel of its own. I’m inclined to believe that all things being equal, access to specialized, or exclusive, content could be the big differentiator for them.”

Cablevision lost 8,700 basic video subscribers in the second quarter, which was down 38,000, or 1.2 percent, from June 2008. On the plus side, the nation’s fifth-largest MSO added 56,000 digital video subscribers, which was a 2 percent increase over March and a 4.1 increase over the same quarter a year ago.

On the data side of the ledger, Cablevision brought in 17,900 new subscribers in the second quarter, which was largely flat from March, but up 4.5 percent from last year. The Bethpage, N.Y.-based company increased its telephony head count with the addition of 37,600 new customers for a 2 percent gain over March’s results and an 11.3 increase over the same quarter a year ago.

Cablevision’s Optimum Lightpath division saw its net revenues decline 2.4 percent to $60 million. AOCF increased 21 percent to $25 million, and operating income improved from $3.8 million to $4 million compared with the prior year. Cablevision said Optimum Lightpath’s second-quarter results were impacted by adjustments to intra-segment revenues and interconnection charges.